In an editorial today, the New York Times renewed its calls for the State Department to say no to the Keystone XL pipeline. Unfortunately, this editorial is not very careful with respect to language and buys into some of the rhetoric put forward by opponents of the pipeline, while doing a good job at correcting some inconsistencies in arguments put forward by proponents, in particular jobs figures.

The editorial states that:

What pipeline advocates — including big-oil lobbyists and House Republicans who have tried to force an early, favorable decision — fail to mention is that much of the tar sands oil that would be refined on the Gulf Coast is destined for export. Six companies have already contracted for three-quarters of the oil. Five are foreign, and the business model of the one American company — Valero — is geared toward export.

Having excess production of refined products, with the excess available for export, will absolutely make the US more energy secure in terms of access to physical commodities. In the event of a US refinery shutdown or limit to maritime access, the US would be able to re-direct domestic supplies to meet domestic demand. If you disagree, challenge yourself to think about other energy export industries – is Quebec less energy secure because they produce much more electricity than they use and then export the balance to Ontario and the US? I would think not. In times when domestic consumption increases, as was the case in Q1-2011, Quebec simply exports less electricity.

The same would be true in a market in which the US was exporting more refined products. If US demand were to increase (as unlikely as that seems) or supply were to decrease for other reasons, the excess capacity would simply remain in the US, as it would no longer make commercial sense to pay transportation costs to export a product for which there was a scarcity at home.

To suggest that oilsands crude (dilbit or synthetic) would be exported on a sustained basis from the US makes no sense at all, as Michael Levi makes very clear in this piece. As the US imports significant quantities of oil today (much of it heavy oil comparable to Canadian dilbit), you’d need to believe in a scenario where a tanker unloads heavy oil in Port Arthur, re-loads with heavy oil from Keystone XL, and sails out to another port. The financial market would see a clear gain from re-routing the shipment into port to the market which would otherwise have been served by Keystone-XL-shipped oilsands crude, and the oilsands crude would remain in Port Arthur. Unless you foresee a situation where US demand drops to the point where the US is within 700kbpd of being an oil exporter (a drop of 30% in domestic oil demand from current levels along with an increase in domestic production to 12 million bpd would do that), exporting oilsands out of Port Arthur makes no financial sense at all.

“…while greenhouse gas emissions caused by tar sands production have declined over the last two decades, the extraction and production of tar sands oil still causes far more emissions than conventional crude.”

Unless we are talking about a per-barrel calculation, the extraction and production of oilsands produces approximately 40Mt/year of GHG emissions, while the extraction and production of conventional crude would exceed this several times over, simply because global production of conventional crude far exceeds Canadian production of oilsands. Somewhat surprisingly, according to US IPCC inventory numbers, page 3-50, US emissions from crude oil production were 30.6Mt CO2e in 2009, even though US oil production rates are more than 6 times higher than oilsands. It seems th editorial would also be accurate if it stated that, “the extraction and production of tar sands oil still causes far more emissions than the extraction and production of US conventional crude.”

10 responses to “New York Times Editorial on Keystone – Details Matter.”

Another consideration is the ongoing decline in imports of heavy crude from Mexico and Venezuela, as I discuss on my blog: bit.ly/phXC6B … Mexico’s oil output is in serious decline, while Venezuelan output is stagnant and Chavez has strategic reasons (i.e. future U.S. sanctions, international arbitration rulings, conflict etc) to want to get out of the U.S. market and to sell Citgo. Canadian dilbit would simply substitute for that growing decline in imports, in which case it would re-occupy that niche in the U.S. domestic market for refined products.

Thanks for commenting. That’s absolutely true, except that I would substitute “refinery feedstock” instead of “refined products” in your text. VZ is the big wild-card as there is significant political uncertainty with respect to future production and relationship to the US market.

Sorry, I was using shorthand. Refinery feedstock and then (largely) to the refined products market in the United States, although I suppose some would be exported as diesel etc. Re: Venezuela, I hope someone is doing investigative journalism on Citgo and Venezuela’s attempts to sell it: http://bit.ly/rjOj0L …. Chavez has been talking about selling it for years, and it makes perfect sense for him to unload it fast. But he hasn’t done so yet. For every day he waits, the price probably will go down, and he can’t wait for an adverse ruling in the 17 or so international arbitration cases against Venezuela.

Is it:
1.) Refined then exported on a long term basis (you say no.)
2.) Refined then exported in the short term, but in the long term used for domestic consumption.
3.) Not exported at all. (so the NYT got it wrong.)
4.) Something else?

I assume that, for obvious historical reasons and the building of KXL, the southern US has a high refining capacity relative to production in the lower 48. Is it the case that shipping costs are low enough for heavy oil to be imported, refined in the US, and exported to other markets? So that statements on the US both importing and exporting large amounts of oil could be accurate.

Good questions, Alastair. I would say that your #1 and #3 are the most likely scenarios. To some degree, the available oilsands product will displace existing refinery feedstock, and so production of refined products will go where they are going now (some exports, some domestic). Since oilsands would only have one other market (US Midwest) with temporarily depressed prices, there is the potential that Gulf Coast refiners get a lower-cost feedstock than they are getting right now, making additional runs economic, and so you see more production of refined products, therefore more exports of refined products. US isn’t exporting upgraded (Synthetic Crude) oil, they are exporting more refined products, primarily diesel.

It is becoming more and more embarrassing to be a Canadian these days, as the Anti-Environment Minister cuts more and more, thus making a lie out of any promise they made to monitor the oilsands properly: